Tuesday, March 6, 2001: Money Remains Root Of Nursing Homes' Woes

Florida's nursing-home crisis is about money. All kinds of money.It's about insurance premiums that have increased tenfold in one year. It's about Medicaid, the primary financier of Florida's long-term care system, that today covers only 88 cents of every dollar spent to run a nursing home.

It's about nurses' aides who can earn more as supermarket cashiers and suffer less aggravation. And it's about nursing-home corporations that, for years, siphoned millions out of Medicare, then used the money for rapid expansions -- until the money dried up and left them in bankruptcy court.It's a big, complicated mess of a problem, years in the making. And it won't go away by passing legislation making it more difficult for residents and their families to sue.

"It's a case of several trends turning against nursing homes at the same time," said Henry Aaron, a senior Brookings Institute fellow specializing in public finance and health-care taxation. "Government reimbursements are screwed down. . . . They have to find a way to make their revenues cover their costs."

Ned Black, who has been selling insurance to Florida nursing homes for 15 years, is more direct.

"It's all about greed," said Black, senior vice president of Seitlin. "Everyone thought they could make lots of money -- lawyers, nursing homes, insurance companies -- everybody. Instead, it's become about killing the goose that laid the golden egg."

LAWMAKERS TO TACKLE ISSUES

Along with the growing number of million-dollar legal settlements against nursing homes, the money problem most likely to be taken up in the two-month legislative session that begins today is escalating insurance premiums.

An analysis by Aon Worldwide Actuarial Solutions of for-profit, corporate-run nursing-home chains found that Florida's loss cost, or the cost of defending and settling claims, was more than eight times the national average. Because cases can be filed under a liberal Resident's Rights law rather than medical malpractice, and damages are unlimited, Florida homes are more likely to be sued.

Black said even the small family-run South Florida homes he insures saw their premiums go up overnight; one saw an annual premium increase of about $300 per bed to $3,000. Or homes can't find any coverage they can afford.

"It's a tough, tough business right now," Black said. "Facilities are being forced to make a choice between going without insurance and taking a chance or paying $65,000 a year and going bankrupt."

But the nursing-home industry did not find itself in this financial hole overnight. A lot of parties, including the homes, were responsible for digging it, according to federal and state studies and congressional reports during the past year.

FACTORS IN A DISASTER

Since the early 1990s and before spiraling insurance costs, a number of factors shaped the financial disaster that needs fixing today. Among them:

Nursing homes depend heavily on Medicaid, as about two-thirds of Florida's 70,000 nursing-home residents have their care paid through this program for indigents -- including many middle-income seniors who shift their assets to make themselves eligible. But while Medicaid reimbursements have risen 61 percent in 10 years, to an average of $116.91 per patient per day, operators say it is not enough. Changes in rate structures and reductions in incentive payments chipped away $127 million in nursing-home funding from 1989 to 1997, a state Medicaid panel found.

Figures for the Florida Association of Homes for the Aged show facilities lose $15.74 per patient per day. Eighty-two percent of homes last year didn't get enough from Medicaid to cover expenses, compared with 54 percent a decade ago.

During the early 1990s, largely for-profit nursing homes seized the opportunity to make more money off Medicare, the federal insurance programs for seniors, by taking on more short-term patients being forced out of hospitals earlier by changes in Medicare hospital reimbursement.

Many of the for-profit chains, such as Integrated Health Services that has filed for Chapter 11 bankruptcy, put the cash into expansion. That gave Florida one of the highest ratios of for-profit beds in the country, at 85 percent. These companies also started therapy clinics and other ancillary services and then referred their own residents.

But the Balanced Budget Act of 1997, enacted to curb runaway Medicare billing for skilled nursing care, dramatically cut payments and left highly leveraged corporations with a sprawl of new ventures to support.

Today, six of the eight publicly traded nursing-home chains operating in Florida and controlling 23 percent of the beds are in bankruptcy court, although they are still in business. One, Lennox/Newcare, has pulled out of Florida.

In the mid-1990s, some for-profit chains also cut corners trying to keep high profit margins to attract investors. Others got caught in fraud and scandals.

Beverly Enterprises, the country's largest publicly traded nursing-home chain, with 51 facilities in Florida, pleaded guilty to Medicare fraud and agreed to pay a settlement of $175 million. The company had a negative cash flow of $170 million in 1999, according to Standard and Poor's reports, but it still held $1.9 billion in total assets that year.

Personnel account for 70 percent to 80 percent of most nursing-home budgets. Administrators are under increasing pressure to hire and retain good staff, as well as keep staffing ratios high, as studies show that more and better-trained nurses equal better care.NURSES' AIDES HARD TO GET

But with a good economy and tightening labor market, homes are struggling to recruit nurses' aides, who provide the bulk of the care and earn an average of $7.74 an hour, according to state labor statistics. While minimum wage is $5.15, a 2000 Service Employees International Union study showed that telemarketers, duplicating-machine operators and garbage collectors earned from $1.23 to $3.10 an hour more than aides.

In the past, nonprofit homes could hire more staff because they didn't need to show a profit to stockholders, and thus gained a reputation for better care. But within the past year, attorneys have dropped their long-standing hands-off policy for the not-for-profits, many of which are attached to religious organizations.

In 1999, 40 percent of the nonprofit homes had litigation against them, according to the Florida Association of Homes for the Aged. By 2000, two-thirds did.

Insurance increases followed and are as high as $6,208 per bed per year. "Where are these places going to get that kind of money?" said Erwin Bodo, the association's senior vice president of reimbursement. "They can take it out of reserves for a year or two, but then what will happen?"

SOME LACK INSURANCE

Bodo said several nonprofit facilities are operating without insurance, and one in Jacksonville is considering closing.

Congress, however, had mixed feelings last year about throwing more money at the nursing-home problem -- especially when they examined how for-profit chains were spending it.

Committee testimony showed that these publicly traded companies added $5 billion in debt as they bought and consolidated properties in the mid- to late-1990s. Among them, Genesis Health purchased Multicare for $1.4 billion in 1997, and Vencor bought three health-care companies for a total of $2 billion from 1995 to 1997. Genesis and Vencor are now in bankruptcy court.

"Nursing-homes companies in bankruptcy often blame the government for their financial problems and want more money," said U.S. Sen. Chuck Grassley, R-Iowa, the committee chairman. "I'm not convinced that those companies need more money. The test is whether patients have access to adequate nursing-home care."

T. Patrick Ford, a Miami attorney who has dug through corporate records of the nursing homes he sues, says some have shielded assets and hidden profits by leasing their buildings to management companies that they created -- in effect, paying rent to themselves.

"Most of them are crying poor mouth, but they're still here, even in bankruptcy," said Ford, in nursing-home litigation for 15 years. "A lot of time, there is money being made, but it's being diverted."

Even nursing-home associations today admit the fiscal errors of the for-profit industry's ways. "No question, Medicare was being used as an expansion tool. Everyone acknowledges that some of the companies chose to expand quite rapidly by offering [ancillary] services," said Tony Marshall, director of reimbursement for the Florida Health Care Association, which primarily represents for-profit homes.

MORE MEDICARE AID COMING

Still, nursing homes will be getting more Medicare money this year. Deciding the 1997 Balanced Budget cuts went too deep, Congress agreed to restore some of the Medicare funds. Florida homes will get up to $50 million more this year.

More Medicaid money has been coming to Florida, too, funding that is half-state and half-federal. In 1998, Florida added $40 million to the $1.6 billion it pays for Medicaid nursing care so that homes could provide extra care for their more-frail patients. Another $50 million followed in 1999, with $31 million for hiring and training nurses.

And now Gov. Jeb Bush has asked for another $46 million this year, also for staffing.

But more Medicaid money won't solve the immediate problem of insurance, which parties on both sides of the debate say must be tackled in tandem with litigation this year. The insurers have said even if the law is changed to make it harder to sue and collect damages, they won't necessarily return immediately, as they are wary of cases in the pipeline.

Black, the insurance agent, said his company writes policies covering 10,000 long-term-care beds, mostly smaller, noncorporate, for-profit homes. He estimates that by the end of this year, about 90 percent will be without coverage because they can't afford it or can't get policies.

Strangely enough, what the industry calls "going bare" may solve the litigation issue for these uninsured homes, Black said.

With no claims pools to dip into, lawyers will have little incentive to sue small facilities without deep corporate pockets.

"If you can't get money out, it will be difficult for a lawyer to put the $30,000 to $50,000 in that it takes to work up a case," Ford agreed. "What will we do? The entire industry would end up being regulated through the bankruptcy courts."

`MARKET OF LAST RESORT'

One of the insurance solutions getting the most attention is forming a state-mandated "market of last resort" similar to what was imposed when insurers refused to write property coverage after Hurricane Andrew. Besides homeowner's insurance, Florida has these special markets for automobile coverage, medical malpractice and workers' compensation, where a pool of insurers shares the risk of issuing policies.

From the moment he assumed leadership last year of a statewide task force to study long-term care, Lt. Gov. Frank Brogan has insisted the crisis involved more than nursing homes vs. lawyers. Legislators must craft solutions, Brogan said, that involve facilities and residents in decisions about money and quality care, new ways of tending to the aged and disabled inside and outside of nursing homes.

Larry Polivka, head of the Florida Policy Exchange Center on Aging, which assisted the task force, wonders if that will occur in Tallahassee this spring.

"If we just keep putting money into nursing homes, we'll build ourselves a nursing-home trap," he said. "It's going to be tomorrow right away with this problem. We have to prepare now before it's too late."